I am chairing a panel for a lengthy arbitration next week, so the usual preparation is in process.  Therefore, today’s “Highlights” is less comprehensive than most.  However, there are a few cases I wanted to call to your attention, at least in summary form.

Arbitration and staffing companies

Plaintiffs in Reeves v. Enterprise Products Partners, LP, 2021 U. S. App. LEXIS 33245 (10^th Cir. Nov. 9, 2021), were employees of staffing companies, who performed services for the defendant at its facilities.  Plaintiffs’ employment contracts with the staffing company contained arbitration clauses.  They had no written agreement with the defendant.  However, Enterprise, not the staffing company, determined the hours they worked.  Plaintiffs alleged that Enterprise violated the Fair Labor Standards Act by “paying” them on a per diem, rather than hourly basis; accordingly, plaintiffs contended, they did not get legally mandated pay for overtime. Relying upon the provisions of Plaintiffs’ agreement with the staffing company, Enterprise sought to compel arbitration.  The District Court denied the motion, holding that, since Enterprise was not a signatory to the arbitration provision, it could not get the benefit thereof.  The Court of Appeals, with Chief Judge Tymkovich writing for himself and Judges Baldock and Carson, invokes the concept of equitable estoppel and reverses.  The court holds that, under choice of law doctrines, Oklahoma law governs the issue. As Oklahoma’s highest court has not ruled on the availability of “concerted misconduct estoppel,” the panel looks to precedent from mid-tier appellate courts.  Based on that review, it holds that “Reeves’ and King’s claims allege substantially interdependent and concerted misconduct by [the staffing companies] and Enterprise.” Whatever claim plaintiff may have against Enterprise, the court holds, is “substantially intertwined” with his contract with the staffing company “because it involves the income which he expected to receive from [the staffing company] during the course of his employment.”  Denying Enterprise the right to arbitrate would allow plaintiff to benefit from the contract, without being subject to the arbitration provision therein.  The case is remanded to the District Court, presumably to compel arbitration.

Look through determination of diversity

ADT, L.L.C. v. Richmond, 2021 U.S. App. LEXIS 2021 U.S. App. LEXIS 33431 (5^th Cir. Nov. 10, 2021), explores the edges of the “look through” doctrine.  In a state court action, Richmonds allege that Telesforo Aviles, an ADT installer, used the video function in an ADT security system to spy on the defendants and other customers; they seek $1 million dollars in damages.  Rather than moving in state court to arbitrate the claim pursuant to a provision in the Richmonds’ installation contract, ADT brought this separate federal court action.  Since the Richmonds are citizens of Texas and ADT is a citizen of Florida and Delaware, Plaintiff asserted that the District Court had diversity jurisdiction.  ADT did not include the installer as a party to the petition; however, the District Court “looked through” the petition to determine whether anyone not named therein was a party in the underlying litigation which ADT sought to send to arbitration.  It, then, held that Aviles, as a co-defendant with ADT in state court, was effectively a party to the petition to compel arbitration. Since he is a Texas resident, as are the Richmonds, his interest destroyed diversity between plaintiffs and all defendants; the District Court, therefore, dismissed the petition for lack of subject matter jurisdiction. The Court of Appeals, with Judge Smith writing for himself and Judge King, holds that, while a court may “look through” the allegations of a complaint to determine whether the underlying claim gives it federal question jurisdiction, it should limit its inquiry in cases of diversity jurisdiction to the citizenship of parties named in the petition before it.  Both the panel and Judge Haynes, who concurs in a single paragraph which, perhaps in reaction to a multi-page footnote in the majority opinion, she dubs a “shorter road,” leave open the possibility that the lower court, on remand, might determine that Aviles, while not named in the petition, is an “indispensable party;” that diversity between plaintiffs and all defendants would not exist if he were made a party; and that the case must be dismissed for lack of subject matter jurisdiction. In a footnote, however, the majority gives the District Court a strong indication that it would not consider Aviles to be indispensable.

An earlier issue of “Highlights” reported on this case at the District Court level.  So, on an editorial note, this case serves as a reminder that “Highlights” discusses cases when they come out; it does not track whether those cases are later reversed.   Therefore, before you rely on a case discussed in these pages, always be sure that the decision is still “good law.”

“Sham” arbitration

I generally do not bother with cases in which the District Court refuses to enforce an award issued by institutions which base their actions on purportedly self-executing arbitration agreements arising from a defendant’s silence in the face of a plaintiff’s unilateral demand for compensation – in other words, providers of what a number of courts have deemed “sham” arbitrations.  However, Magistrate Judge Neureiter’s decision in Matios v. City of Loveland, 2021 U.S. Dist. LEXIS 217313 (D. Colo. Nov. 10, 2021), is an exception for two reasons.  First, he lays out in detail the circumstances leading up to the “arbitration award” and conduct by the plaintiff which the court opines was “the very definition of frivolous, vexatious, bad faith litigation.” Second, he assembles cases from around in the country addressing what he terms “bogus” arbitration awards issued by Sittcom, the institution which provided the underlying award here.  Ultimately, the Magistrate Judge not only vacates the award, but also directs plaintiff to show cause why he should not be required to pay the City’s attorneys’ fees.  The case is worth holding keeping handy in case a client is presented with an arbitration “award” from one of these groups.

As I said above, I expect to be out of the writing box for the next week, as my day job as a neutral needs to take precedence. Have a good week and be safe.

David A. Reif
Reif ADR
Dreif@reifadr.com
Reifadr.com